In my opinion, this is an easy one. The most dangerous idea
in the USA is this idea that the USA has “run out of money” or
that our government cannot afford to do certain things.

I’ve explained this many times before, but this is a myth that
just won’t die.

Here’s my previous explanation
as to why the myth of government insolvency is indeed
dangerous:

“The USA has an institutional arrangement in which it is a
contingent currency issuer. That is, while the Treasury is an
operational currency user (meaning it must always have funds in
its account at the Fed before it can spend those funds) it has
the extraordinary power to tax and issue risk free bonds that the
public will always desire to hold so long as inflation is not
extraordinarily high. In addition, even in a worst case scenario,
the US Treasury can always rely on the Federal Reserve to supply
the funds necessary to fund its spending. Therefore, the US
government can be thought of as a contingent currency issuer who
can issue the funds to spend. This makes it very different
from a household.”

It’s just impossible for the US government to run out of money.
In fact, the real threat in the USA is not running out of
money, but creating too much money! In other words, when
politicians talk about the debt ceiling and how we “can’t afford”
this or that they’re getting everything backwards.

Now, it’s important to get the context of this discussion
correct. When I say that the USA can’t run out of money I
am not saying that the government can just spend money like crazy
or that there is no constraint at all. I am just saying
that the US government’s printing press doesn’t ever break (which
should be rather obvious). Here’s the most crucial piece:

“Of course, this means the constraint for the government is
different from that of a household or business who can really
“run out of money”. The US government’s constraint is not
that it will run out of funds, but that it could supply too much
liquidity to the private sector thereby causing inflation.
So the US government’s real constraint is inflation and not
solvency. This is a vastly different issue than the one the
US media usually harps on with regards to the budget deficit and
the US government’s ability to “afford” its spending.”

I don’t know about you, but the data seems to confirm that
inflation is not very high and aggregate demand is way too low.
If anything, the government could run much higher budget
deficits (for instance, by cutting everyone’s taxes) and while
that might induce some inflation, it might also put more money in
people’s pockets which would help generate higher corporate
revenues, more hiring and a stronger overall economy.

What a tax cut won’t do is cause us to eventually “run out of
money.” But Congress sure thinks it will. And that’s
a dangerously misguided understanding of the monetary system we
have.